Crude oil price drops below $35 for first time since 2004
The prices of crude oil wednesday fell below $35 per barrel for the first time since 2004, tumbling more than five per cent as the row between Saudi Arabia and Iran made any cooperation between major exporters on cutting crude oil supply to the international market more unlikely.
The collapse in relations between Saudi Arabia and Iran after the Saudi execution of a Shi’ite cleric, Nimr al-Nimr, is believed to have ended speculation that the Organisation of Petroleum Exporting Countries (OPEC) could agree to cut production to lift the price of oil.
Hopes that the two rivals might overcome their animosity to agree to manage supply this year were dashed last Monday when Riyadh called off diplomatic ties with Tehran over Iran’s response to the execution of Saudi Shi’ite cleric.
Fellow Gulf OPEC members – the United Arab Emirates and Kuwait – have backed Saudi Arabia in the diplomatic crisis that could deepen sectarian tension in the Arab world.
Also Iraq, OPEC’s second-biggest oil producer, has joined Iran in criticising Riyadh.
A Reuters survey of OPEC production showed that Saudi Arabia ended 2015 with its output at full tilt, with no sign of cutting supply to make room for Iran, which plans to ramp up its own output when international financial sanctions are lifted this year.
According to the survey, Saudi production for December averaged 10.15 million barrels per day, that is, above 10 million barrels per day for nine straight months, which represents the longest period of sustained production above that threshold for decades.
The determination by the world’s biggest oil exporter, Saudi Arabia to defend its market share despite a global glut has helped drive oil prices to their lowest in 11 years.
A sharp rise in United States stocks reinforced the picture of a market that is awash with oil and refined products.
Evidence of slowing economic growth in China and India has meanwhile fueled fears that even strong demand elsewhere may not be enough to mop up the excess crude that has resulted from near-record production over the last year.
Benchmark Brent futures were traded at $34.48 a barrel, down $1.94 yesterday, and at their lowest level since early July 2004. The price is on track for its largest one-day drop in percentage terms in nearly five weeks.
US crude futures were down $1.48 at $34.49 a barrel after slipping 79 cents the previous day.
Oil has slumped from above $115 in June 2014 as shale oil from the US has flooded the market, while falling prices have prompted some producers to pump even harder to compensate for lower revenues and to keep market share.
Iranian oil exports are widely expected to increase in 2016 to add to this oversupply as Western sanctions against Tehran over its nuclear programme are lifted.
The lifting of sanctions on Iran in line with a nuclear agreement is expected to provide the biggest increase in supply of 2016.
Currently, there is excess inventory of 1.5 million barrels a day in the international market as the world produces more than it consumes, and Iran is promising to add another 1 million bpd to the market over the next 12 months.
However, a senior Iranian oil official was quoted by agency reports as saying the country could moderate oil export increases once sanctions are lifted to avoid putting prices under further pressure.
Meanwhile US crude stockpiles rose by 10.6 million barrels last week, the biggest build since 1993, according to Energy Information Administration data.
- This Day